Citizens' Bank of Greenville v. Kretschmar

• Citation: 44 So. 930,91 Miss. 608
• Decision Date: 02 December 1907
• Docket Number: 12980
• Parties: CITIZENS' BANK OF GREENVILLE v. WILKS P. KRETSCHMAR, RECEIVER OF MERCHANTS' & PLANTERS' BANK OF GREENVILLE
• Court: United States State Supreme Court of Mississippi

44 So. 930

91 Miss. 608

CITIZENS' BANK OF GREENVILLE v. WILKS P. KRETSCHMAR, RECEIVER OF MERCHANTS' & PLANTERS' BANK OF GREENVILLE

No. 12980

Supreme Court of Mississippi

December 2, 1907

FROM the chancery court of Washington county, HON. PERCY BELL Chancellor.

The Citizens' Bank of Greenville, the appellant, was the complainant in the court below, the appellee, Kretschmar receiver of the Merchants' & Planters' Bank of Greenville, was defendant there. From a decree denying an equitable set-off against the receiver, the complainant appealed to the supreme court.

On June 6, 1905, three days before the failure of the Merchants' & Planters' Bank of Greenville, appellant, the Citizens' Bank of Greenville, in a clearance between the two banks received a New York exchange draft for $ 1560.66 from the Merchants' & Planters' Bank, and promptly forwarded the same by mail for collection. A subsequent clearance between the two banks, June 9, 1905, showed the Merchants' & Planters' to be a creditor of the Citizens' Bank, by virtue of sundry checks held by it, in the sum of $ 964.59, and this amount the cashier of the Merchants' & Planters' Bank requested the Citizens' Bank to place on its books to the credit of one Atterbury, assignee of the Merchants' & Planters' Bank, the said bank having just a few minutes before made an assignment to Atterbury as assignee for the benefit of its creditors. The Citizens' Bank, having no further knowledge of the circumstances of the assignment than as reported by the cashier, credited the said amount of $ 964.59 to the assignee. A few moments later the Citizens' Bank received a telegram from its New York correspondent that the check for $ 1560.66, given to the Citizens' Bank by the Merchants' & Planters' Bank on June 6, had been protested for nonpayment. Whereupon the Citizens' Bank charged to the account of Atterbury, assignee, the sum of $ 1560.66, representing the protested draft, and credited said account with the sum of $ 964.59 above mentioned, claiming that it had been deceived and defrauded by the Merchants' & Planters' Bank on June 6 in that it caused appellant to accept the New York draft for $ 1560.66 which was worthless. Subsequently the Citizens' Bank instituted suit in equity [in form a cross-petition under statutory proceedings in assignment proceedings] against Kretchmar, receiver of the Merchants' & Planters' Bank, successor of Atterbury in the trust, to enjoin the receiver from proceeding with a suit at law to recover judgment against it for the $ 964.59 and for the enforcement of an equitable set-off in its favor against the receiver; satisfying the $ 964.59 debt by applying it as a credit on the $ 1560.66. The receiver's answer to the bill denied the equitable right of the complainant to the set-off. The chancery court rendered a decree against the Citizens' Bank, and, since the parties had adjusted the pleadings to that end, rendered a decree in favor of the receiver against the Citizens' Bank in the sum of $ 964.59 less credit allowed for certain dividends to be paid by the receiver to the Citizens' Bank, as creditor of the insolvent.

Reversed and remanded.

H. C Watson, for appellant.

The appellant should have been allowed the set-off prayed in the petition: (a) On account of its banker's lien; (b) as an equitable set-off; (c) as a common law set-off; (d) because the receiver took no higher rights than the assignor possessed.

A bank has a general lien on money or funds of a depositor in its possession for a balance on general account. Morse on Banking (4th ed.), § 324. A lien obtains against all moneys or securities of the customer coming into the bank's possession, in regular course of business, for any balance due it on general account. Cockrill v. Joyce, 62 Ark. 35; S.W. 221; Jones on Liens (2d ed.), §§ 241, 244, 246, 247; Reynes v. Dumont, 130 U.S. 392.

Appellant was entitled to enforce its right to an equitable set-off against appellee, because the same rule as to set-offs applies in the case of banks as obtains in the case of individuuals. Eyrich v. Bank, 67 Miss. 76. Equity will enforce set-offs which would not be enforceable at law. One such instance is when a debt against which the set-off is sought to be used in not yet due. Scott v. Armstrong, 146 U.S. 499; 36 L.Ed. 1059; 2 Rose's Notes, 272; Thomas v. Exchange Bank, 99 Iowa 68 N.W. 730; 47 Am. St. Rep., 579. An equitable set-off may also be enforced on a note falling due after the bank becomes insolvent and a receiver has been appointed. Phillier v. Yardlet, 62 F. 251; 25 L. R. A., 832; Mercer v. Dyer, 15 Mont. 39, Pac. 315; Morse on Banking (4th ed.), § 329-330. Items from the Merchants' & Planters' Bank having been received on deposit by appellant, the right of set-off inured immediately. Mercer v. Dyer, 39 P. 315; Scott v. Armstrong, 146 U.S. 499; Van Wagoner v. Gas Light Co., 23 N.J.L. 283; Yardley v. Clothier, 49 F. 337.

The set-off is a good common law set-off as well as an equitable one. Waterman on Set-off, §§ 442, 444; Miller v. Receiver, v Paige, 444; Jackson v. Jackson, 2 Paige, 581; Holbrook v. Receiver, 6 Paige, 620.

It is well settled that the assignee or receiver of an insolvent corporation takes no higher rights than the assignor held; the assignee or receiver not being a purchaser for valuable consideration, but being treated in law as a voluntary assignee. Alderman on Receivers, 8; Paine v. Sykes, 72 Miss. 352.

If the rule be as above laid down in the foregoing authorities, that an equitable set-off will be enforced against an insolvent bank in favor of one of its customers, or in favor of the bank in which the insolvent bank was a depositor, the rule is applicable to the case at bar. The checks drawn on the Citizens' Bank, and held by the Merchants' & Planters' Bank, became the property of the Merchants' & Planters' Bank on receiving them, and the receiver claims ownership thereof by virtue of this fact. If these checks belonged to the Merchants' & Planters' Bank, it follows that when they were by it endorsed and delivered to the Citizens' Bank, they became its property, and remained its property for two hours before the failure of the Merchants' & Planters' Bank. It was not contemplated that the checks were ever to be turned back to the Merchants' & Planters' Bank under the terms of the clearance, but on the other hand, the only item that was to be taken and liquidated was the due bill of the Merchants' & Planters' Bank. The fact that the Citizens' Bank had credited the checks to the receiver, did not operate as a transfer to him of the money called for thereby, but was simply a recognition of the receiver as the legal successor and representative of the Merchants' & Planters' Bank.

LeRoy Percy, for appellee.

I am unable to discover any principle, whatever, whether based upon bankers' lien, common law or equity, upon which appellant's right to a set-off, under the facts of this case, can be successfully asserted. The authorities cited by learned counsel for appellant might be of some avail if the Citizens' Bank had placed the money in question to the credit of the Merchants' & Planters' Bank, and that bank had made the assignment to Atterbury, the assignee and the assignee then, by virtue of the assignment, had claimed to be the owner of the deposit. Under such a state of facts, the appellant unquestionably could refuse to pay the money to the assignee, and could have appropriated it on the debt due to it by the insolvent bank. But it is perfectly clear that the checks held by the Merchants' & Planters' Bank on the Citizens' Bank, aggregating $ 964.59, did not alone constitute claim against the Citizens' Bank, nor operate, prior to presentation, as an assignment pro tanto of the funds of the respective drawers, in the hands of the Citizens' Bank. 7 Cyc., 650.

It is well established that a check does not constitute a debt from the drawee to the holder, so as to avail such holder as a set-off against an insolvent drawee. Northern Trust Company v. Rogers, 60 Minn. 208. Vice versa, it is clearly true that a check held by an insolvent holder is not a debt of the drawees, which can be offset on a claim by such drawee to such holder. When, then, did the relationship of debtor and creditor arise? When did the Citizens' Bank ever become indebted to the Merchants' & Planters' Bank on these checks, if at all? When the checks were turned over to the Citizens' Bank under the preliminary clearing, they were turned over under an arrangement by virtue of which, if it became final, the Merchants' &amp Planters' Bank owed the Citizens' Bank $ 1,462. The clearing was an entirety when consummated. The Citizens' Bank was to hold these checks, because the Merchants' & Planters' Bank was to hold the checks of that institution, amounting to $ 2426.59, which had been surrendered to it by the Citizens' Bank. When,...